Question

Suppose that people without jobs who were looking for work stop doing so. Other things the same, this makes

		the labor force will remain the same and the unemployment rate falls
		both the labor force and the unemployment rate remains the same
		both the labor force and the unemployment rate fall
		the labor force will fall while the unemployment rate remains the same

Answer 1

Labor Force = Employed + Unemployed

Unemployed are those who are willing and searching for work but does not find jobs. But here People without jobs have stop searching and thus will be considered as a discouraged workers and hence will not be considered as unemployed and hene will not be considered at be a part of labor force and hence Labor force will decrease.

Unemployment rate = (Unemployed/Labor force)*100

Now, Let initial number of unemployed = U and Labor force = L

Thus, Initial Unemployment rate = (U/L)*100

Let now A people stop searching and thus Labor force will decrease by A and also unemployed will also decrease by A(as discussed above)

=> New Unemployment rate = ((U-A)/(L-A))*100 (Note that ((X-Y)/(Z-Y)) < X/Z for all Y > 0)

Thus, New Unemployment rate < Initial Unemployment rate. So, unemployment rate will also decrease.

Hence, the correct answer is (c) both the labor force and the unemployment rate fall.